TL Twitter Updates

February 2011

February 28, 2011

Below is a sneak peek of Jea Yu's 4-hour course that he will be presenting at our Traders' Forum March 26-27th. You can register now for only $99. This includes breakfast and lunch both days, attendance to all 4 presentations, and accompanying manuals! Click here to learn more about our upcoming Traders’ Forum!

February 27, 2011

I have created a presentation for those of you that are probably not yet trading the stock market. I want you to start thinking about investing your savings in the stock market. Not waiting until there is more free time, more savings or just waiting until retirement. Because the best chance for success is that you are still young and therefore able to profit from a compounding investment strategy for years to come.

In the presentation I look at some different possibilities today.- Is buy and hold investing a solution?- What kind of trading techniques should you apply?- Can you trade an index long term?- Or is trading the index medium term better?- Should you trade stocks medium term?- Perhaps trading options?- Or day trading Futures?- And what about day trading Forex?

I am answering all of these questions in my presentation.

Savings account

So, you have some savings, even limited amounts, what can you do?

First, to avoid the discussion what is a $1000 worth in 50 years from now, we can compare the dollar price change of gold. Based on the gold price evolution we can estimate an average price difference, taking out short term extremes, to a factor of 13 since the gold standard was abandoned in 1971.

That means a $1,000 must be worth $13,000 after 50 years for a comparable buying power.

An interest rate on a savings account of 3% net, compounded per year during 50 years would give only $4,384 or compared to the evolution of the gold price, you are losing 2/3 of the buying power of the original capital. You actually need about 5.3% net to compensate for this loss. A savings account is clearly not a good solution.

The index is breaking the lower side of the up moving pitchfork and the 20 day median line of the Bollinger bands. It bounced back up from the 50 day average. I believe that the down correction has started. I expect in first instance a correction to around 1180. I have the impression there is something wrong with the volume data, I am not taking it into account for now.

Last week I wrote "impulse wave (5) and wave v in the hourly chart are valid waves and with that we may have completed the correction wave {C} up". This was a correct assumption. Now we are making wave b up and I expect the start of wave c down next week.

The SATS5 expert turned red on Monday. We close the open long position with a profit of 93.9 points or 7.7%. There is a total realized profit of 56% since March 13, 2009. All trading entries and results can be found at the bottom of this page. There is no open position now.

Longer term up wave {5} and with that correction wave {A} (weekly chart) was completed and the index next made a medium term downtrend correction wave {B}. Now we are in the up move and possibly completed correction wave {C} and with that long term correction wave [B] (or [1]).

SATS5 green means an open long position. First red or black candle after a green candle closes the long position. A black candle means an open short position. A green or red candle after a black candle closes the short position. Since SATS5 can trade profitably both with long and short trades, we will also trade short automatically. You can follow up FREE SATS5 signals for 42 stocks. (Now 15.7% realized profit since September 2010).

Last week I wrote "the indicators have room for a further up move towards the upper side of the Bollinger band". That is where we are now. There is still more room in the indicators to continue this up move. Probably bringing price above the top A, finishing correction wave (B) up. Since I think that the S&P500 stock index is starting a down move, I expect the EUR/USD also to be ready soon for a move down. The next couple of weeks will most probably be decisive. The SATS5 expert is still green for an open long position. We previously closed a short position with a loss of 233 pips. The last long position was closed with a profit of 777 PIPS.

February 26, 2011

The overall market has a strong effect on how well trading patterns perform. Focusing solely on the patterns or setups in the individual stocks you are trading can diminish results or make them highly variable. This is one reason why traders using the same patterns may experience different results. Trading patterns are like waves at the beach. They come along and some are big, others are small, but they all are affected by the tide. When the tide is coming in the waves make it further up the beach, and when the tide is going out the waves do not run as far. The market is like the tide, and has a strong effect of the results of trading patterns and how far they run.

Even when the tide is going out there are waves coming in, just as there is usually something moving up even in bearish market conditions. If you want to see a lot of waves making it farther up the beach, it more likely to happen when the tide is coming in. In a similar manner when the market is bullish we are likely to see more stocks moving up. Using different trading tools designed for specific market conditions is a process I call Market Adaptive Trading (MAT). More information on Market Adaptive Trading can be found atwww.daisydogger.com.

Some traders gain a better understanding of trading patterns, and the environments in which to use them, though experience. After trading for a number of years they begin to understand what variations of a particular trading pattern work best, and which ones are more prone to failure. Experience often produces good results when we are listening closely, however it can be costly.

A less expensive way to develop an in depth understanding of how trading patterns work is by backtesting the pattern. Backtesting also allows us to test how simple variations or changes in the trading pattern effect results. Backtesting can be done over a variety of time periods and even in specific market conditions. The more traders understand exactly how and when their trading patterns work, the more effective use they will be able to make of each tool in the trading toolbox.

Back testing does not guarantee future results. There are no guarantees in trading, and no way to know if any particular trade will be profitable or not. Backtesting helps remove some of the emotion, hunches, and unknowns in trading. It can show you how a particular system has performed in different market conditions in the past and what types of filters may be most interesting in prioritizing trading opportunities. Examples of six complete trading systems and how they perform in different market conditions is covered in ‘How to Take Money from the Markets’

Feb. 26, 2011 (Allthingsforex.com) – The week ahead might not be only about rising oil prices and risk aversion on the unrest in North Africa and the Middle East, as the market’s focus shifts to three interest rate announcements from the Reserve Bank of Australia, the Bank of Canada, and the European Central Bank, along with the U.S. Non-Farm Payrolls and Employment Situation report which could instill some optimism that job creation could be gaining momentum.

In preparation for the new trading week, here is the outlook for the Top 10 spotlight economic events that will move the markets around the globe.

1. USD- U.S. Personal Income and Outlays, a measure of the income received and purchases made by consumers, released along with the Personal Consumption and Expenditures Price Index- a leading indicator of inflation preferred by the Federal Reserve, Mon., Feb. 28, 8:30 am, ET.

Consumer spending in the U.S. is forecast to register a smaller increase by 0.5% m/m in February from 0.7% m/m in January, while the Fed’s preferred inflation gauge, the core PCE Index, is expected to continue to show subdued inflationary pressures with a slight increase by 0.1% m/m, compared with the flat 0% reading in the previous month.

As the Chinese government and PBOC step up their efforts to cool things off in the world’s second largest economy, which could reduce the demand from Australia’s number one trading partner, the Reserve Bank of Australia might not see any urgency to hike rates. The central bank is expected to keep the benchmark interest rate unchanged at 4.75% at this meeting. However, with inflationary pressures building up on rising commodity prices and wages, interest rate swaps data shows that the market is still pricing rates to increase by at least 31 basis points in 2011.

The preliminary flash estimate of the European Central Bank’s preferred inflation gauge is forecast to confirm the expectations that inflationary pressures in the Euro-zone would remain above the 2% comfort level, rising by 2.4% y/y in March, same as the 2.4% y/y increase in February.

Although the Bank of Canada is forecast to keep rates unchanged at 1.0% for another month, should the central bank revise higher its forecasts for inflation and economic growth, policy makers could consider resuming their campaign of interest rate hikes in the second quarter of 2011.

5. USD- U.S. ISM Manufacturing Index, a leading indicator of industrial activity, where a reading above or below 50 is the dividing line between economic expansion and contraction, Tues., Mar. 1, 10:00 am, ET.

The U.S. manufacturing sector is expected to register another month of expansion with an ISM index reading of 60.5 in February, a bit lower than 60.8 in December.

6. USD- U.S. ADP-Automatic Data Processing Employment Report, a measure of jobs lost or added to the private sector of the economy, also serving as a preliminary estimate for the outcome of the monthly non-farm payrolls, Wed., Mar. 2, 8:15 am, ET.

After adding 187K new jobs in January, the private sector payrolls are forecast to increase by up to 180K in February, remaining below the stronger December reading of 247K.

The revised estimate of the Q4 GDP should confirm that the Euro-zone economy grew by 0.3% q/q in the fourth quarter, slower than the 0.4% q/q expansion in Q3 2010. Consumer spending in the Euro-zone is expected to recover from the 0.6% drop in December with retail sales rising by 0.3% m/m in January.

Three ECB Council members have already hinted that the central bank may need to consider changing its accommodative monetary policy in the near future. Although the European Central Bank is expected to keep the benchmark rate unchanged at 1.0%, the EUR could remain supported if inflationary pressures in the Euro-zone stay above the 2% target, forcing the ECB President and other policy makers to take a more hawkish stance and bring forward the core purpose of assuring price stability as the European Central Bank’s main objective.

The ISM Non-Manufacturing Index is expected to show activity in the services industries registering another month of expansion with a reading of 59.7 in February, compared with 59.4 in January.

10. USD- U.S. Non-Farm Payrolls and Employment Situation Report, one of the most important indicators of economic health, measuring the number of new jobs created or lost in the world’s largest economy, Fri., Mar. 4, 8:30 am, ET.

Last month’s disappointingly low job creation could be followed by a much better U.S. Non-Farm Payrolls report with forecasts expecting the U.S. economy to add up to 170K jobs in February, compared with only 36K in the previous month. Private sector payrolls are also forecast to rise to 185K from 50K in January. On the other hand, the unemployment rate could inch higher to 9.1% in February from a previous reading of 9.0%. A positive jobs report, which could help alleviate the Fed’s concerns about the lack of “significant improvement in labor market conditions”, could lend support to the U.S. dollar.

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February 25, 2011

Click hereto register for DeCarley's next webinar, Getting Started in Option Selling part II!

Buy Carley Garner's Books and DVD's on TradersLibrary.com!!

The stock market has made an art out of "blink and you miss it" corrections. Although we had originally thought the dip would extend into the mid-to-high 1270's in the S&P, we've now come to the conclusion that the low 1290's could have been "it". From here it seems the stock indices are poised to make new 2011 highs.

As mentioned in yesterday's newsletter, the equity markets are being held hostage by the Middle East and more specifically, crude oil.

Excerpt from recent newsletters (just in case you missed it):

Trade in the stock index futures will be highly dependent on events in the Middle East and their effects on crude oil. As dramatic as the crude rally has been, the market seems to be pricing in a lot of "what if's" rather than reality. This doesn't mean further deterioration of the situation can't occur, but it implies that the market is bracing for the worst and could be vulnerable to disappointment. Keep in mind that Libya produced approximately 1.7 million barrels of crude per day, and so far production has declined to about 700,000 barrels. However, the U.S. imported only about 51,000 barrels per day from Libya and this accounts for less than 1% of total crude imports. Also, the International Energy Agency and Saudi Arabia have pledged to cover any shortfall in supply resulting from ceased operations in Libya. In other words, don't get caught in the hype just yet...

It appears as though oil prices "might" have seen a key reversal; if so, the equity markets may be finding support sooner than many had thought. In stark contrast to the ideal held by traders in much of 2010 in which it is believed that higher oil, meant higher oil stocks and therefore higher stock indices; traders are now assuming higher energy prices will choke the recovery. In other words, the correlation has gone from positive to negative and a pullback in crude oil could trigger "bargain" hunting in equities.

There are other analysts with this view; according to Jim McDonald of Northern Trust in Chicago, "If we see oil prices normalize back down to where they were at the end of the year because of increased stability in the Middle east, that would be constructive to global growth and investors would love that."

Monday's tend to be bullish days for the equity markets, and we doubt that the upcoming session will be any different. Despite a temporary scare, we think the bulls will be reloading (assuming a lack of event risk over the weekend and stable crude oil prices). If we are right, the S&P could see prices as high as 1350 in the coming week or so. Similarly, the Russell could see 844 and the NASDAQ 2423.

Ceiling in Treasury futures could get punctured!

As mentioned in yesterday's newsletter, stocks and bonds can travel higher together as asset prices of all types are being inflated by the Treasuries cash injections. In today's session, that was exactly what occurred...although the buying in each market is being attributed to different factors and were at differing paces.

The buying pressure across bonds and notes was moderate at best, but in the face of a sharp equity rally it suggests the bias in the near-term will be higher regardless of action in other markets and maybe even the technical resistance overhead.

In today's news, the government's second estimate of fourth quarter growth was reported to be 2.8%. Most were expecting a figure closer to the previous reading of 3.2%. Not a bombshell, but a reason to keep fixed-income products in a portfolio. On the other hand, the final reading of the Michigan Sentiment consumer confidence index landed at a better than expected 77.5.

Seasonal tendencies in Treasuries suggest there could be a temporary rally, but the month of March tends to be a weak one. Therefore, we are looking for a place to be a bearish but feel like there will be better opportunities...especially on the short end of the curve.

First notice day is Monday, so you should be out of all of the March futures by now and into June. We see resistance in the June 30-year bond futures from 120 to 120'15ish but it "feels" like stops could be run. If so, we can't rule out a quick run to the mid to high 123's. In the 10-year note, we see resistance near 120 but we think closer to 121 is probable.

In my last article on how to trade both before and after a stock reports earnings, I talked about a mini-swing to swing timeframe with GOOG and BIDU as examples. But what can one do if the stock reports well, yet has a negative market phase, looks oversold, and the Dow Jones Industrial Average just closed down $265 with the pre opening call indicating another $80 lower?

That is when one looks to daytrade based on solid risk/reward parameters using a 2 minute opening range breakout. That can apply whether the stock has either gapped up or down. The important factors are twofold: the risk must not exceed the reward (stick to a 2:1 ratio); and the momentum must occur immediately.

Chapter 4

AUTO-SUGGESTION

The Medium for Influencing the Subconscious Mind

The Third Step toward Riches

Auto-suggestion is a term which applies to all suggestions and all self-administered stimuli which reach one’s mind through the five senses. Stated in another way, auto-suggestion is self-sug­gestion. It is the agency of communication between that part of the mind where conscious thought takes place, and that which serves as the seat of action for the subconscious mind.

Through the dominating thoughts which one permits to remain in the conscious mind, (whether these thoughts be negative or positive, is imma­terial), the principle of auto-suggestion voluntarily reaches the subconscious mind and influences it with these thoughts.

No thought, whether it be negative or posi­tive, can enter the subconscious mind without the aid of the principle of auto-suggestion, with the exception of thoughts picked up from the ether. Stated dif­ferently, all sense impressions which are perceived through the five senses, are stopped by the con­scious thinking mind, and may be either passed on to the subconscious mind, or rejected, at will. The conscious faculty serves, therefore, as an outer-guard to the approach of the subconscious.

Nature has so built man that he has absolute control over the material which reaches his subconscious mind, through his five senses, although this is not meant to be construed as a statement that man always exercises this control. In the great majority of instances, he does not exer­cise it, which explains why so many people go through life in poverty.

February 23, 2011

A Bullish TCG recently completed on McCormick and Company. What does TCG mean? In The Gartley Trading Method: New Techniques to Profit from the Markets Most Powerful Formation, the Gartley Pattern is categorized into two groups; the Trend Reversal Gartley (TRG) and the Trend Continuation Gartley (TCG.) The difference between the two has to do with the price action that precedes the X point of the pattern. In H.M. Gartley’s book Profits in the Stock Market, he identified a significant trend prior to X point of the pattern. He went on to describe his pattern as One of the Best Trading Opportunities and that it was similar to a head and shoulders pattern or a double top or bottom. If there was a significant down trend in McCormick prior to the X point on the chart, then the Gartley Pattern would be a TRG (Trend Reversal Gartley) and the D point would be a retest of the X point low or a double bottom. If the price action prior to the X point looks more like a correction against the existing trend (as in the case with McCormick) then the gartley pattern is a TCG (Trend Continuation Gartley.) To learn more about the Gartley Pattern and Geometric Trading Course, go to www.geometrictrading.com

February 19, 2011

Feb. 19, 2011 (Allthingsforex.com) – The main measure of U.S. economic activity and growth, coupled with consumer and housing market reports from the world’s largest economy, will take the center stage in the busy week ahead.

In preparation for the new trading week, here is the outlook for the Top 10 spotlight economic events that will move the markets around the globe.

1. EUR- Germany IFO Institute Business Climate and Expectations Index, a leading indicator of economic conditions and business expectations in the Euro-zone’s largest economy, and Euro-zone Composite Manufacturing and Services PMI- Purchasing Managers Indexes, two leading indicators of economic conditions measuring the activity of purchasing managers in the manufacturing and services sectors, Mon., Feb. 21, 4:00 am, ET.

Following a positive ZEW sentiment survey, the German IFO index is expected to maintain the optimistic outlook with a reading of 110.2 in February, compared with 110.3 in the previous month. The preliminary flash estimate of the Euro-zone Composite PMI could demonstrate strength in the Euro-zone economy with the index rising to 56.9 in February from 56.3 in January.

Stubbornly high inflation and the threat of economic slowdown as a result of the U.K. government’s massive spending cuts create a difficult situation for the Bank of England policy makers. The minutes are expected to confirm that, despite of the rising inflationary pressures, the Monetary Policy Committee was not in any hurry to hike interest rates. However, if more policy makers have joined the camp of the two “rate hawks” Andrew Sentance and Martin Weale, the market could continue to price expectations for an interest rate increase in the near future.

4. USD- U.S. Existing Home Sales, the main gauge of the condition of the U.S. housing market measuring the number of closed sales of previously constructed homes, condominiums and co-ops, Wed., Feb. 23, 10:00 am, ET.

After a better-than-expected housing starts report, the sales of existing homes could also inch higher to 5.3 M in January from 5.28 M in December.

Despite of the significant 2.3% m/m drop in December, the U.S. orders for durable goods are expected to rebound with an increase of 2.4% m/m in January. First-time applications for unemployment benefits are forecast to reach 405K, slightly lower that the reading of 410K in the previous week. To indicate a significant decline in unemployment, economists estimate that jobless applications would need to fall to 375K or below.

6. USD- U.S. New Home Sales, an important gauge of housing market conditions measuring the number of newly constructed homes with a committed sale during the previous month, Thurs., Feb. 24, 10:00 am, ET.

The U.S. new home sales could register a small increase by up to 330K in January from 329K in December. However, considering the bad winter weather conditions in a number of U.S. states, the potential for weaker-than-expected new and existing home sales should not be excluded.

Although deflation could persist with the inflation gauge expected to stay below 0% for another month, the Japanese economy could see inflationary pressures rising a bit as the CPI registers a smaller 0.3% y/y decline in January from -0.4% y/y in December.

The revised estimate of the U.K. Q4 GDP should confirm that the U.K. economy contracted by 0.5% q/q in the fourth quarter compared with the 0.8% q/q expansion in Q3 2010.

9. USD- U.S. GDP- Gross Domestic Product, the main measure of economic activity and growth in the world’s largest economy, Fri., Feb. 25, 8:30 am, ET.

This main spotlight economic event of the week will bring the second estimate of the U.S. Q4 GDP which is forecast to revise the U.S. economic growth higher by 3.3% in the fourth quarter of 2010, up from the preliminary estimate of 3.2% and faster than the 2.5% growth in the third quarter.

10. USD- U.S. Consumer Sentiment, the University of Michigan's monthly survey of 500 households on their financial conditions and outlook of the economy, Fri., Feb. 25, 9:55 am, ET.

Consumers in the U.S. are expected to remain optimistic with a revised consumer sentiment index reading of 75.4 in February, up from the previous 75.1 estimate.

The index moved past the 1320 target now reaching a top of 1344. A further up move to 1360 is possible. But I expect soon a bigger correction in first instance to around 1180. I am afraid there is something wrong with the volume of the last 3 days, we better do not take it into account this week. Impulse wave (5) and wave v in the hourly chart are valid waves and with that we may have completed the correction wave {C} up. The SATS5 expert is green making a new highest profit this week. We have an open long position. Trading entries and results can be found at the bottom of this page.

Longer term up wave {5} and with that correction wave {A} (weekly chart) was completed and the index next made a medium term downtrend correction wave {B}. Now we are in the up move completing correction wave {C} and with that long term correction wave [B] (or [1]). More information about SATS5 HERE. Green means an open long position. First red or black candle after a green candle closes the long position. A black candle means an open short position. A green or red candle after a black candle closes the short position. Since SATS5 can trade profitably both with long and short trades, we will also trade short automatically. You can follow up FREE SATS5 signals for 42 stocks HERE. (Now 13.2% profit on closed trades in about 4 months).

As expected there was a move already on Monday to the lower side of the Bollinger band and close to the 50 day average. However, the medium term support around 1.35 was not broken by the closing price. Starting Wednesday it was all up again, breaking the upper side of the downward pitchfork. The indicators have room for a further up move towards the upper side of the Bollinger band. Since I expect the S&P500 index to turn down soon, I expect the EUR/USD not to move above the top of wave (B) and that we are still in the making of wave (C) down. The next couple of weeks will most probably be decisive. The SATS5 expert is still green for an open long position. We previously closed a short position with a loss of 233 pips. The last long position was closed with a profit of 777 PIPS. More information about SATS5 HERE.

February 17, 2011

In the equity markets, stock values are higher and volatility is lower, as we have seen over the last two years. Not only is this a true statement, but it was made by Ben Bernanke, the Chairman of the Federal Reserve on February 3, 2011. This in and of itself is very intriguing. Does Ben actually trade the markets and the VIX as well?

I want to comment on this a bit. First, it is not my understanding that the Fed's job is to monitor the equity markets and to gauge the health of the banking industry by stock valuations.

Secondly, I believe if they are supposed to monitor any sector of the overall markets, perhaps starting with the KBE, or the XLF would be a good start. After all, the Fed's main job as an independent entity is to regulate the nation's financial institutions. The primary responsibility of the Fed is devising and implementing monetary policy.

The chart below on the financial sector exchange traded fund (XLF) shows that the overall sector has not only yet to break out above April 2009 highs, but it is at lower levels from that point in time. In addition, the recent rally since the beginning of the year was on lighter volume, and now as we enter mid-February, this sector is showing a tendency towards price weakness.